Guide · 6 min read
Section 24: how mortgage interest is taxed
If you own a rental in your own name, your mortgage interest isn't a cost for tax. You get a credit instead. Here's what that means for your bill.
In short
- If you own a rental in your own name, you're taxed on the rent before taking off mortgage interest.
- You get a tax credit of 20% of the interest instead.
- Basic-rate taxpayers end up roughly where they were. Higher-rate taxpayers pay more: £1,350 a year on our example deal.
- From 6 April 2027 property income is taxed at 22%, 42%, 47%, and the credit rises to 22%.
- Limited companies aren't affected: they deduct interest in full.
How it works
Section 24 of the Finance (No. 2) Act 2015 changed how landlords get tax relief on borrowing. It was phased in from April 2017, and since April 2020 none of the interest can be taken off the rent.
- Work out the profit without the interest. Rent, less running costs such as the letting agent, repairs and insurance. Mortgage interest isn't taken off.
- Work out the tax on that profit at your usual rates, with the profit added on top of your salary or pension.
- Take off the credit: 20% of the interest. If your profit or income is too small to use it all, the rest carries forward to next year.
It applies to mortgage interest and to other finance costs such as arrangement fees and loans for furniture. It covers people who own property personally or in a partnership, and since April 2025 furnished holiday lets too.
A worked example
A £180,000 house let for £1,100 a month, with a £135,000 interest-only mortgage at 5%. After the letting agent, repairs, insurance and two empty weeks, the profit before interest is £10,472 a year, and the interest is £6,750.
| Basic-rate landlord £30,000 salary | Higher-rate landlord £60,000 salary | |
|---|---|---|
| Profit taxed (interest not taken off) | £10,472 | £10,472 |
| Tax on that profit | £2,094 | £4,189 |
| Less the 20% credit | −£1,350 | −£1,350 |
| Tax to pay | £744 | £2,839 |
| Basic-rate | Higher-rate | |
|---|---|---|
| If interest could still be taken off | £744 | £1,489 |
| With Section 24 | £744 | £2,839 |
| Extra tax a year | £0 | £1,350 |
| Cash left after tax, a year | £2,978 | £883 |
The deal leaves £3,722 a year after the mortgage and every cost. The basic-rate landlord keeps £2,978 of it; the higher-rate landlord keeps only £883.
From 6 April 2027
Property income gets its own tax rates, two points above the rates on other income: 22%, 42%, 47%. The credit rises to 22% to match the new basic rate. On the same deal, the tax becomes £819 for the basic-rate landlord and £2,913 for the higher-rate one. Our calculator switches to these rules by itself for any deal completing from that date.
Who it costs most
- Higher and additional-rate taxpayers. They pay tax of 40% or more on the profit but get only 20% back on the interest.
- Landlords with big mortgages. The more interest, the bigger the gap.
- People near a tax threshold. Because the whole profit before interest counts as income, it can push you into the higher rate, start to take away your personal allowance above £100,000, or bring in the child benefit charge, even when the property makes little cash.
In the worst cases a landlord pays tax on a property that loses money each month. Always check the cash left after tax, not before.
What landlords do about it
- Buy new properties through a limited company, which deducts interest in full. It has costs of its own; see Limited company or your own name?
- Borrow less. A bigger deposit or paying down the loan cuts the interest that isn't fully relieved.
- Share ownership with a partner who pays less tax. Each owner is taxed on their share of the profit, so this can help, but changing ownership has legal and tax steps of its own.
- Run the numbers at your real tax rate. Many deals that look fine before tax don't work for a higher-rate taxpayer.
Moving properties you already own into a company is a sale for tax purposes, so it can mean stamp duty and capital gains tax. Get advice from an accountant before you do it.
Every figure on this page is worked out by the NestInsights calculator, using the tax rules in force on 10 October 2026. The rules were checked against GOV.UK and the Welsh Revenue Authority on 8 October 2026. This guide explains how the rules work; it isn't financial or tax advice, so check your own case with an accountant or adviser.